An emergency fund is your financial safety net. Without one, unexpected expenses become debt. Here's how to build yours.
What is an Emergency Fund?
Money set aside for unexpected expenses:
- Job loss
- Medical emergencies
- Car repairs
- Home repairs
- Family emergencies
Not for: Vacations, shopping, planned purchases. That's different savings.
How Much Do You Need?
Starter: 1 Month of Expenses
If you have nothing, start here. Even $1,000 / ₹50,000 helps.
Basic: 3 Months of Expenses
Covers most short-term emergencies and job transitions.
Full: 6 Months of Expenses
The gold standard. Provides real security.
Extended: 12 Months
For freelancers, single-income families, or unstable industries.
Calculating Your Number
You need to know your monthly expenses. This is where expense tracking matters.
- Track all expenses for 1-2 months
- Calculate average monthly spending
- Multiply by 3-6 months
- That's your target
Example (India)
| Monthly expenses | ₹40,000 |
| 3-month fund | ₹1,20,000 |
| 6-month fund | ₹2,40,000 |
Example (USA)
| Monthly expenses | $3,500 |
| 3-month fund | $10,500 |
| 6-month fund | $21,000 |
Where to Keep It
Requirements
- ✅ Easily accessible (liquid)
- ✅ Safe (not volatile)
- ✅ Separate from spending money
- ❌ Not in investments (stocks can drop)
Good Options
- High-yield savings account — Best for most people
- Separate bank — Harder to tap accidentally
- Fixed deposit (part) — For portion you won't need immediately
How to Build It
- Set a target — Start with 1 month
- Automate — Transfer on payday
- Cut unnecessary spending — Track to find where
- Use windfalls — Tax refunds, bonuses
- Don't touch it — Unless true emergency
Expense Tracking Helps You Save Faster
When you track expenses, you:
- Know exactly what you need to save
- Find money leaks to plug
- See progress toward your goal
- Stay motivated by the data
Start Tracking Today
Know your expenses. Build your emergency fund faster.